Rules for renting to relatives
Those who rent a flat to close relatives, such as their own children, can benefit from tax advantages. The prerequisite is that the rental agreement is correctly structured and actually implemented.
Reduced rent: Tax advantages through income-related expenses
Even with a reduced rent, landlords can deduct income-related expenses (e.g. depreciation, interest on debt) for tax purposes. The following applies:
- Rent ≥ 66% of the local market rent: Income-related expenses are fully deductible.
- Rent between 50% and 66% of the local rent: A total surplus forecast is required:
- Forecast positive: full deduction of income-related expenses
- Forecast negative: income-related expenses only partially deductible
- Rent < 50% of the local rent: Rental is partially classified as gratuitous. Income-related expenses are only deductible in proportion to the paid rental share.
These rules only apply to the rental of residential property – not to rooms used for commercial or freelance purposes.
Total surplus forecast: When is it necessary?
A total surplus forecast must be carried out if:
- the rent is between 50% and 66% of the local rent
- or in exceptional cases also for rental at more than 66%, e.g. for elaborately designed or very large properties (over 250 m² living space)
The forecast checks whether a profit can be made from the rental within 30 years.
Arm's length comparison: Contract as with third parties
A rental agreement with relatives must withstand the same conditions as a contract with third parties:
- Contract in writing and clearly regulated
- Actual payment of rent
- Implementation as agreed
If, for example, the rent is offset against maintenance, there is no paid rental relationship – income-related expenses are then not deductible (BFH ruling of 16.02.2016, IX R 28/15).
Cash maintenance is better than maintenance in kind
If a flat is provided to the child as "maintenance in kind" (rent is offset against maintenance claim), this is not recognised for tax purposes.
Recommendation: Pay cash maintenance so that the child transfers the rent themselves.
Furnished flats: Consider furniture surcharge
For furnished or partly furnished flats, a surcharge on the local rent can be applied – but only if:
- this surcharge is included in the rent index or
- it is realistically achievable on the market
Not permitted: Surcharges based on depreciation or flat-rate percentage surcharges (BFH ruling of 06.02.2018, IX R 14/17).
How is the local rent determined?
The local rent is usually derived from the local rent index.
Alternatively (e.g. if there is no rent index):
- Expert opinion
- Information from rent database
- Comparison with at least three comparable flats
A single comparable rent in the same building is not sufficient if there is a valid rent index (BFH ruling of 22.02.2021, IX R 7/20).
Special case: Large or luxurious properties
For very large or high-quality flats (e.g. villas over 250 m², swimming pool), a total surplus forecast may be required despite compliance with the 66% limit (BFH ruling of 20.06.2023, IX R 17/21).
- Case study:
Parents rent three villas to their children, each with > 250 m² living space.
The rental leads to high losses, which are to be offset against other income.
→ Not allowed, as there is no intention to generate income.
- Reason:
The market rent often does not realistically reflect the special residential value of such properties.
Long-term loss-making activity indicates hobby – losses are not deductible for tax purposes.
